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BHP Billiton Limited Earnings: Solid Showing in an Ugly Market

BHP Billiton is suffering through falling commodity prices, but it's becoming a better company along the way.

BHP Billiton Limited (NYSE:BHP) posted horrible top- and bottom-line results in the first half of its fiscal year compared to the same period a year ago. But those numbers were actually pretty good when you look at the difficult commodity markets in which BHP operates. So, all in, it was a good first half for the megaminer.

That looks uglyBHP saw its top line decline nearly 12% year over year in the first six months of its fiscal year. Earnings per share, meanwhile, fell nearly 50%. Those are two ugly numbers, the second clearly much worse than the first. Taken out of context, you'd think about running for the hills based on these results. But the shares jumped over 5%.

Why? BHP actually did better than expected. For example, the company's underlying attributable profit, a non-GAAP measure, came in at $5.35 billion, down around 30% year over year. But analysts had been expecting that number to be $5.1 billion or so. In other words, BHP is doing a good job at managing a tough market environment.

The big pictureThe big reason for the company's top- and bottom-line troubles is weak commodity prices. Prices for core products iron ore, metallurgical coal, copper, and now oil are weak right now. There's nothing BHP can do about that. However, that doesn't mean BHP is doing nothing.

For example, it has been working hard to cut costs and improve efficiency. In the six-month period, BHP cut its capital and exploration budget by 23%. It's keying in on projects that offer investment returns of more than 20%, choosing to invest in only its best opportunities. There are plans for further budget cuts here next year, too.

Meanwhile, costs at key operations have been falling. Some examples are the 29% reduction in cash costs at the miner's Western Australia Iron Ore business, a 15% reduction at its Queensland Coal operation, and an 8% drop in costs in its U.S. Onshore oil arm. Meanwhile, production across the company was up around 9%.

Source: Bahnfrend, via Wikimedia Commons.

Metallurgical coal, iron ore, and oil were particular strong points on the production front, up 21%, 15%, and 9%, respectively. Copper production fell 2%, largely because of lower quality ore. That said, the two weakest mines in this group actually processed more material year over year in the six-month period. So, even where the company's performance has been tough, underlying operations are doing reasonably well.

South32While digging beneath the numbers shows that BHP is doing well operationally in a tough market, that was only part of the news investors were excited about. The pending spin-off of South32 was the other bit of interesting information. BHP is essentially looking to spin off smaller operations so it can focus on the core areas noted above. The cast-offs include aluminum, manganese, thermal coal, and other businesses that don't contribute materially to revenues and profits.

The so-called "demerger" process is moving along as planned. However, the big news was that BHP plans to maintain its current dividend after the spin-off. South32 will institute its own dividend policy. That cheered income investors, particularly since BHP CEO Andrew Mackenzie pretty much said the miner would look to keep raising the dividend over time.

A giant that's not lost at seaBHP Billiton is a giant miner with its fingers in key global markets. It has top-notch assets located near important customers. And while results are uninspiring right now because of weak commodity prices, this miner remains profitable -- that's no small feat. In fact, it was able to raise its dividend by 5%.

With oil prices now in the doldrums, BHP is facing down a giant storm, but it is proving very capable of weathering whatever gets thrown at it. If you are looking for a well-diversified miner to play a rebound in commodity prices, BHP's first-half performance shows it could be an excellent choice.